Most people don’t think much about the Federal Reserve, and few think about the impact of the US central bank on investors. But over the past few years, that has started to change. Many economists and keen market watchers argue that years of loose monetary policy by the Fed and other central banks after the Great Financial Crisis (GFC) helped create the ‘everything bubble’ – and now it’s popping.
The idea of a bubble is not new. A few years before the stock market crash of 2022, leading minds on Wall Street, including investment legend Jeremy Grantham, warned of a brewing “superbubble.” The idea is that near-zero interest rates and quantitative easing (QE)—a policy in which the Fed buys mortgage-backed securities and government bonds to boost lending and investment in the economy—led investors into riskier, unsustainable businesses. allowed models. thrived on cheap debt and led to “wildly unhealthy” growth in house prices.
Lane Turner – The Boston Globe/Getty Images
It’s early days, but in retrospect, this period of easy money was accompanied by many strange financial predictions. The downside for Americans hasn’t been pretty, as inflation continues to run amok and recession fears grow. But there is a silver lining for the financial community. The bubble of everything produced some of the most ludicrous and hilarious predictions in history.
From cryptocurrency experts and hedge fund managers to economists and investment banks, the easy money era was full of bulls who believed the good times would never end. Let’s take a look at some of their weirdest calls.
Bitcoin bulls
The cryptocurrency boom of 2020 and 2021 was unprecedented. Between January 2020 and the peak of the cryptocurrency craze in November 2021, the total value of the industry increased by more than $3 trillion, and Bitcoin prices increased by nearly 800%.
Cryptovalents were convinced that the party had just begun. Billionaire venture capitalist Tim Draper said in June 2021 that Bitcoin will reach $250,000 by the end of 2022. “I think I will be right about this” CNBCJade Scipioni.
Bitcoin ended 2022 just above $16,500, but last month Draper reiterated his call for Bitcoin to reach $250,000 — this time, he said, by mid-2023.
“I expect a flight to a quality and decentralized cryptocurrency like bitcoin and some weaker coins becoming relics,” Draper said. CNBC.
Tim Draper did not respond Luckcomment request.
Draper wasn’t the only leading figure to jump on the Bitcoin bandwagon and make lofty predictions during the era of easy money. ARK Invest’s Cathie Wood was the first public asset manager to gain exposure to Bitcoin in 2015 through the Bitcoin Investment Trust (GBTC) as part of their technology-based exchange-traded ETFs.
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The bet led Wood to face heavy criticism from his peers, but with the exception of a brief crypto winter in 2018, it paid off as the price of Bitcoin topped $65,000 by November 2021.
Wood was confident that the good times will continue throughout the bull market. He said in November 2020 BarronInstitutional adoption of the cryptocurrency will push the price of Bitcoin to $500,000 by 2026, and Bitcoin has “taken the plunge” many times when prices have fallen. Wood even said Globe and Mail In a February 2020 interview, he said Bitcoin was “one of the largest positions” in his retirement account.
ARK Invest CEO remained bullish even in early 2022, when Bitcoin prices fell from above $65,000 to $50,000. He argued in ARK’s annual research report “Big Ideas 2022” that the leading cryptocurrency will reach $1 million by 2030.
Since then, the price of Bitcoin has fallen by more than 60%, but Wood and his team are not worried and still believe that their predictions are fair.
“We think Bitcoin is coming out smelling like a rose,” Wood said Bloomberg in December, it claimed that it would finally buy Bitcoin after it was “battle tested” by the institutions crypto winter.
Cathie Wood did not respond Luckcomment request.
Tom Lee, head of research at Fundstrat Global Advisors, who previously served as chief equity strategist at JPMorgan and spent more than 25 years on Wall Street, has also been a perennial Bitcoin bull. In early 2022, he predicted that Bitcoin would reach $200,000 in the coming years.
And despite the recent decline, he admitted, it was “terrible” for investors, Lee said CNBC in November, he still believes that Bitcoin will break out of the current downtrend and reach its target. But while many crypto forecasters are sticking to their high estimates, Wall Street is backing some of them back.
Tom Lee didn’t answer Luckcomment request.
High stock market predictions
Investment banks have made quite dramatic predictions during the era of cheap money. After the stock market soared through the pandemic and returned 28% to investors, Wall Street was confident things would slow down in 2022, but not to the extent they actually did.
Investment banks had expected the S&P 500 to end 2022 at 4,825, showing only a modest 1% gain for the year. Instead, the blue chip index fell by about 20%.
The (perhaps unjustified) bullishness among investment banks was particularly evident when looking at price targets for growth stocks benefiting from pandemic trends. For example, online used car retailer Carvana has soared throughout the pandemic as used car prices hit record highs.
The firm was able to take advantage of consumers’ inability or unwillingness to shop for vehicles in person during COVID, prompting some analysts to make wildly bullish predictions.
In January 2022, Morgan Stanley auto analyst Adam Jonas called Carvana “an apex predator in auto retail” and set a 12-month price target of $430 on the stock. Since then, shares of the online auto retailer have fallen more than 97% to just $4.48, and some analysts believe investors are in for more pain.
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Morgan Stanley did not respond Luckcomment request.
New Construct CEO David Trainer warned investors in June that Carvana was burning cash at an unsustainable rate and could not survive.
“Time is running out for cash-burning companies kept afloat by easy access to capital,” Trainor said. Luck. “These ‘zombie’ companies are at risk of bankruptcy.”
Coinbase is another example of the enthusiasm that has developed on Wall Street over the past few years. When the cryptocurrency went public in April 2021, shares rose from $250 to $381 per share.
CNBC’s former hedge fund manager Jim Cramer took to Twitter after the IPO. saying “Likes Coinbase to $475,” he said. And he wasn’t alone, investment banks’ average price target for the stock was more than $400 a share in early 2021.
But since then, Coinbase shares have fallen more than 90% amid the crypto winter. And Cramer changed his mind, he said December 13 tweet calling it “too early” that “Coinbase is not a buyer here.”
CNBC did not respond Luckcomment request.
The era of cheap money may have led many forecasters to assume that asset prices would continue to rise regardless of valuations, but this year proved to be a wake-up call. Wall Street analysts have cut price targets for many of the stock market’s pandemic darlings. As Tim Pagliara, chief investment officer at investment advisory firm CapWealth, says, it’s a new era for markets and forecasters. Luck last month.
“We’re going to take a lot of the guesswork out of it,” he said. “There will be a reevaluation of everything from commercial real estate to how the investing public views things like cryptocurrency.